2014west 1800

Whether the down payment for forfeiture of real estate contract constitutes business necessary expenses.

Confiscation of down payment following termination of a real estate contract shall not be deemed necessary expenses for business under the requirements of Article 27 (1) of the Income Tax Act.

Seoul Administrative Court 2014Guhap15740

Yang-○

○ Head of tax office

May 15, 2015

May 29, 2015

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

Cheong-gu Office

The Defendant’s disposition of imposing global income tax of KRW 000,000,000, which was imposed on the Plaintiff on October 1, 2013, shall be revoked.

1. Details of the disposition;

A. From August 28, 2008, the Plaintiff operated a convalescent hospital with the trade name of “○○○○○○○○○○ (hereinafter “○○○”)” from “○○○○○ (hereinafter “○○”). From November 7, 2012, the Plaintiff is operating a convalescent hospital with the trade name of “○○○○○○ (576-20)” from “○○○○ (hereinafter “○○”).

B. On the other hand, on April 8, 201, the Plaintiff concluded a contract to purchase the instant real estate site and building (hereinafter “instant real estate”) at KRW 8.5 billion from ○○○○○-dong, ○○○○-dong (hereinafter “○○○○”) (hereinafter “instant sales contract”) and paid the down payment of KRW 5.5 billion on the day of the contract. On April 22, 2011, the Plaintiff agreed to pay the remainder of KRW 2.3 billion after the contract date, respectively.

C. Since △△ did not receive the intermediate payment on April 22, 2011, the Plaintiff notified the Plaintiff of the forfeiture of the down payment. The Plaintiff filed a lawsuit claiming the return of down payment, etc., but the judgment dismissing all the Plaintiff’s claim on April 27, 2012 (Seoul Western District Court Decision 201Gahap8188 Decided April 27, 2012), and the said judgment became final and conclusive around that time.

D. The plaintiff existing 500 million won of the above confiscated down payment (hereinafter referred to as "the forfeited down payment of this case")

The comprehensive income tax was reported in 2012, including necessary expenses incurred in the process of acquiring fixed assets for business in order to move the hospital.

E. The Defendant, on the ground that the instant forfeiture contract deposit cannot be deemed to be a expense to contribute to forming the amount of business income, was excluded from necessary expenses, and thus, issued a correction and notification of the global income tax of KRW 000,000,000, which is reverted to October 1, 2013 (hereinafter “instant disposition”). (F) The Plaintiff filed an appeal with the Tax Tribunal on March 14, 2014, but the decision was dismissed on June 27, 2014.

[Ground of recognition] Facts without dispute, Gap evidence 2, 4, 7 through 9, Eul evidence 1 and 2, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

Since the Plaintiff purchased the instant real estate from △△ in order to transfer the business of a convalescent hospital operated by ○○ place of business, the instant confiscation contract amount falls under necessary expenses similar to the expenses under Article 55(1)7 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 24356, Feb. 15, 2013; hereinafter the same shall apply) and cannot be deemed as losses caused by the Plaintiff’s intentional or gross negligence. Thus, the instant disposition that did not deduct the down payment from the total amount of business income does not constitute “compensation paid where it infringes another’s rights intentionally or by gross negligence” under Article 33(1)15 of the former Income Tax Act (amended by Act No. 12153, Jan. 1, 2014; hereinafter the same shall apply). Therefore, the instant disposition that did not deduct the down payment from the total amount of business income is unlawful

(b) Related statutes;

It is as shown in the attached Table related statutes.

C. Determination

1) Article 27(1) of the former Income Tax Act provides that the amount to be included in necessary expenses when calculating the amount of business income shall be the sum of expenses corresponding to the total amount of income in the pertinent taxable period, which is generally accepted, and Article 27(3) of the same Act delegates the Presidential Decree on matters necessary for the calculation of necessary expenses, and Article 55(1) of the former Enforcement Decree of the Income Tax

2) We examine whether the instant contract deposit constitutes necessary expenses to be included in the calculation of the business income prescribed in each of the above provisions. As asserted by the Plaintiff, even if the instant contract was concluded for the purpose of transferring the existing convalescent hospital business, in light of the following circumstances, which can be seen by comprehensively taking into account the aforementioned facts and evidence, and the purport of the entire pleadings, the instant contract deposit cannot be deemed as expenses corresponding to the total amount of income and directly related to the Plaintiff’s business, and thus, the instant disposition that was not included in the necessary expenses is lawful.

① Article 55(1)7 of the former Enforcement Decree of the Income Tax Act provides for the repair cost, management cost, maintenance cost, rent, and non-life insurance fee for maintaining current status as the necessary expense item of the said expenses. Article 55(1)27 of the said Enforcement Decree provides for the expenses corresponding to the expenses under subparagraphs 1 through 26 of the said Article, which are similar to the expenses under subparagraphs 1 through 26 of the said Article. The expenses for the business property under subparagraph 7 of the said Article are deemed as the expenses directly incurred in the business property necessary for operating the business in order to obtain the total amount of income. It is interpreted that the instant real estate is not incorporated into the Plaintiff’s business property. The instant real estate is not incorporated into the Plaintiff’s business property, and it is merely the expenses paid by the Plaintiff in the process, and it is difficult to view that it is directly invested in the business property provided to the Plaintiff’s business property

② If the sales contract of this case was rescinded due to the nonperformance of the obligation in △△, and the Plaintiff would be paid the damages amounting to KRW 500 million, the damages amount is not the Plaintiff’s business income, but the damages amount to be paid due to the breach or termination of the contract stipulated in Article 21(1)10 of the Income Tax Act. This is premised on the premise that the business income in the convalescent hospital and the revenues from penalty are not directly related to the medical care business, and thus, it is difficult to view the down payment of this case paid

③ The price paid when purchasing the same place of business as the instant real estate does not constitute necessary expenses under the Income Tax Act. The instant confiscation down payment was paid as part of the purchase price of the instant sales contract, and thereafter, the nature of the money was somewhat changed due to the Plaintiff’s nonperformance of obligation. However, in light of the purport of the provisions of the Income Tax Act which does not regard the money paid as the price for assets in the process of acquiring assets for business as necessary expenses, there is no room for deeming the case where the asset acquisition itself was nonexistent in the process of acquiring assets as in the instant case.

④ The Plaintiff asserts to the effect that the instant contract deposit for forfeiture is not intentionally or by gross negligence on the part of the Plaintiff, and thus, should be included in necessary expenses as damages not falling under the “compensation for damages paid in the event of infringement on other person’s rights by intention or gross negligence” in relation to the business under Article 33(1)15 of the Income Tax Act. However, even if the Plaintiff paid damages due to intentional or gross negligence, such fact alone is not immediately deemed necessary expenses, but should be the expenses related to the business in accordance with Article 27(1) of the Income Tax Act.

3. Conclusion

Therefore, the plaintiff's claim is dismissed as it is without merit, and it is so decided as per Disposition.

(c)